Abstract
Agricultural operations in southern Peru are particularly vulnerable to climate variability due to water resource scarcity. In general, the response to drier than normal conditions in this region is reactive and fairly limited due to challenges associated with climate forecasting and administrative capacity to distribute resources. To shift this paradigm, we investigate the potential for an El Niño–Southern Oscillation index-based insurance product. The article presents a demonstration of methodology and application for one specific crop in a department of southern Peru. The purpose of this product is to streamline the ability of decision makers to provide financial relief to affected farmers during, and perhaps before, drought; extending the lead-time of the index that is used to trigger product payouts produces results of similar skill to a product trained on concurrent conditions. Issues explored in this work include basis risk, initial endowment requirements, product longevity, and the potential crossover from index-based insurance to forecast-based financing. The ability of such products to mitigate losses during and after drought may be advantageous in Peru and other regions with notable interannual climate variability.
Highlights
Agriculture is a important sector to the country of Peru, accounting for roughly 8%of national GDP and 25% of the labor force [1]
Index-based insurance presents a unique alternative to traditional insurance products, especially in southern Peru, where administrative capacity is low, credit is limited, and relief to past disaster has been delayed
Index-based insurance could play a large role in increasing the resilience of communities
Summary
Agriculture is a important sector to the country of Peru, accounting for roughly 8%of national GDP and 25% of the labor force [1]. The 2.2 million farmers of Peru produce one of the most diverse spreads of crop in the world. This is the case in southern Peru, a region composed of four departments (Arequipa, Moquegua, Puno, and Tacna) that produced more than 1.25 million tons of crop in 2014 [2]. Two-thirds of these farms are rain-fed [5]. Such factors are quite relevant when considering the impact of meteorological drought on an already semi-arid region participating in an economic activity dependent on water availability
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
